Dassault Aviation (XPAR:AM, Financial) ("Dassault") – During the third quarter, the Fund initiated a position in Dassault, an aerospace and defense company headquartered in Paris. The core of the business is the production of Falcon business jets and Rafale fighter jets. Each type of aircraft is well-known and well-respected with a variety of loyal customers. For example, outside of its home market of France, the Rafale fighter jet has recently received orders from the Indian Air Force, which is eager to upgrade older Mirage jets (also made by Dassault) as it faces heightened tensions in disputed territories in Kashmir. Greece has also recently chosen the Rafale to improve its capabilities. On the business jet side, the Falcon competes primarily in the wide-cabin, long-range business jet category, which is characterized by a very limited number of very competent players. The business jet industry has seen some disruption as a result of the pandemic but the amplitude of disruption has been far less than the commercial air industry and the recovery far faster. There is a school of thought that suggests that the burdens and dangers of flying commercial during the pandemic may actually prove a tailwind for the private jet market. Honeywell recently published a study concluding that the business jet market is poised to fully recover to 2019 levels by the end of 2021, far sooner than is anticipated for commercial air travel. Lastly, Dassault also owns 25% of Thales SA ("Thales"), a publicly-listed global aerospace, defense and digital security company. We have valued the collection of assets and businesses owned by Dassault in a variety of ways but one carrying significant weight in our decision to initiate a position is that the current market value of Dassault is less than the combination of its large net cash position and its stake in Thales. In other words, we are buying the entire core business of making business jets and fighter jets for a negative cost.
From Third Avenue Value Fund (Trades, Portfolio)'s third-quarter 2020 portfolio manager commentary.
